AVI GLOBAL TRUST: £952m fund that seeks out value others have missed

Compared to most other global investment funds, AVI Global has weathered the difficult stock market conditions of the past year remarkably well. While generating total losses of just under four percent, they are significantly less than the 14 percent recorded by the average global fund.

The reason for the relative outperformance is the defensive nature of this £952m listed investment trust. Manager Joe Bauernfreund, CEO of investment company Asset Value Investors, is not interested in buying shares in growth stocks like Amazon, Alphabet or Apple.

His entire modus operandi is based on seeking investments that are undervalued by the market but offer long-term potential.

It’s a research-intensive process — the fund relies on a ten-member bank of internal analysts — and not many companies are compliant. It is also a strategy that is not without risk – some companies remain undervalued forever – but it works. Over the past five years, it has achieved a return of 42.9 percent, compared to 15.6 percent for its peer group.

Bauernfreund says, “We like to buy quality companies at a discount to their true value. In other words, they are mispriced by the market.

“If our analysis is correct, confidence over time benefits from a double whammy: a leading company that delivers good financial results and drives up its share price, and over time, an eradication of the discount.”

He adds, “What we do is very different from our global fund peer group.” The portfolio usually consists of no more than 40 stocks, with the top ten holdings representing more than 61 percent of the assets. “It gives us a better chance of outperformance,” he says.

One of the largest holdings is the French luxury fashion house Christian Dior, chaired by Bernard Arnault with its shares listed in France. The Arnault family owns more than 90 percent of Dior.

Dior, in turn, has a 40 percent stake in LVMH, a company that owns prestigious brands such as Bulgari, Givenchy, Louis Vuitton and Veuve Clicquot.

“Dior’s main asset is its stake in LVMH,” says Bauernfreund. “Dior shares are trading at a discount – and have been since Covid became an issue in 2020.

“We see this as an opportunity to get a low-cost introduction to the growth story that is LVMH. For the past three years, LVMH has weathered all the storms it has faced.

“At some point, we expect the Arnault family to delist Dior, which should be positive for shareholders like us as we are likely to get a price closer to the value of the company’s assets.” Bauernfreund says market conditions have been tough, but confidence remains fully invested. “Yes, the outlook is uncertain, but nervous markets give us the opportunity to identify good buying opportunities that can yield odd returns.”

One peculiarity of the trust is that its own shares are 8 percent off their underlying value. So investors could, in effect, buy attractively priced shares in a trust that, in turn, track down undervalued assets. AVI Global currently generates annual income of 3.3 pence per share and the trust board is committed to at least maintaining the dividend for the foreseeable future.

It’s reassuring that the fund has more than a year and a half of dividends tucked away in its safety deposit box, which can be drawn from when needed.

Dividends are paid twice a year and the total annual cost of the trust is just under 0.9 percent. The exchange identifier is BLH3CY6 and the ticker AGT.